I only have enough credit for one more question. I am aware that the rule states
ID: 2790285 • Letter: I
Question
I only have enough credit for one more question. I am aware that the rule states you only need to solve a limit of 5 answers. However, in this case there are people who are willing to help answer all of them. If you are one of them, please kindly help me answer all of these questions.
Please don't just answer the first question or the five questions, otherwise I WILL HIT THE DISLIKE BUTTON and you will be wasting both of our time. Thank you
A project has an initial cost of $60,000, expected net cash inflows of $14,000 per year for 7 years, and a cost of capital of 13%. What is the project's discounted payback period? Round your answer to two decimal places. yearsExplanation / Answer
Answer 1)
Discounted Pay Back Period =6.68 Years
Years
cash flows
PV factor
DCF
CCF
0
-60000
0
1
14000
0.885
12390
12390
2
14000
0.7831
10963.4
23353.4
3
14000
0.6931
9703.4
33056.8
4
14000
0.6133
8586.2
41643
5
14000
0.5428
7599.2
49242.2
6
14000
0.4803
6724.2
55966.4
7
14000
0.4251
5951.4
61917.8
Pay back period falls in Year 6 and Year 7
Year 6 + Initial Investment-CCF of year 6
DCF of year 7
Year 6 +0.68
6.68 or 6 years 8 months
Answer 2 a)
PROJECT S
Years
cash flows
PV factor @ 10%
PV CF
0
-9000
0
1
2700
0.9091
2454.57
2
2700
0.8264
2231.28
3
2700
0.7513
2028.51
4
2700
0.683
1844.1
5
2700
0.6209
1676.43
pv of cash flows
10234.89
LESS INITIAL INVESTMENT
$9,000.00
NPV
$1,234.89
PROJECT L
Years
cash flows
PV factor @ 10%
PV CF
0
-26000
0
1
7100
0.9091
6454.61
2
7100
0.8264
5867.44
3
7100
0.7513
5334.23
4
7100
0.683
4849.3
5
7100
0.6209
4408.39
pv of cash flows
26913.97
LESS INITIAL INVESTMENT
$26,000.00
NPV
$913.97
PROJECT S SHOULD BE SELECTED BEIING HIGHER NPV.
ANSWER 2 B) PROJECT S IRR=15%
PROJECT L IRR=11%
PROJECT S AHOULD BE SELECTED BEING HIGHER IRR
ANSWER 3)
MIRR S =15.13%
MIRR L= 11.2%
PROJECT S SHOULD BE SELECTED BEING HIGHER MIRR.
ANSWER 4)
PI OF S = NET PV OF CASH FLOWS / INTIAL INVESTMENT
=10234/9000=1.14
PI OF L= NET PV OF CASH FLOWS / INTIAL INVESTMENT
=26913/26000=1.04
HIGHER PI ,PROJECT S SHOULD BE SELECTED
ANSWER 5) Project s should actually be selected
Answer 6)
PLANE A
EXPECTED LIFE
5 YEARS
COST
$ 100 MILLION
NCF
28 MILLION
COC
9%
YEAR
CF
PV @ 9%
PV OF CF
0
-100
1
-100
1
28
0.9174
25.6872
2
28
0.8417
23.5676
3
28
0.7722
21.6216
4
28
0.7084
19.8352
5
-72
(100-28)
0.6499
-46.7928
6
28
0.5963
16.6964
7
28
0.547
15.316
8
28
0.5019
14.0532
9
28
0.4604
12.8912
10
28
0.4224
11.8272
NPV
14.7028
MILLION
PLANE B
EXPECTED LIFE
10 YEARS
COST
$ 132 MILLION
NCF
27MILLION
COC
9%
YEAR
CF
PV @ 9%
PV OF CF
0
-132
1
-132
1
27
0.9174
24.7698
2
27
0.8417
22.7259
3
27
0.7722
20.8494
4
27
0.7084
19.1268
5
27
0.6499
17.5473
6
27
0.5963
16.1001
7
27
0.547
14.769
8
27
0.5019
13.5513
9
27
0.4604
12.4308
10
27
0.4224
11.4048
NPV
41.2752
MILLION
PLANE B IS BETTER PROJECT AND WILL INCREASE THE COMPANY’S VALUE BY 41.27 MILLION.
ANSWER 6)EQUIVALENT ANNUAL ANNUITY PLANE A= $ 2.19 MILLION
EQUIVALENT ANNUAL ANNUITY PLANE B= $ 6.43 MILLION
Years
cash flows
PV factor
DCF
CCF
0
-60000
0
1
14000
0.885
12390
12390
2
14000
0.7831
10963.4
23353.4
3
14000
0.6931
9703.4
33056.8
4
14000
0.6133
8586.2
41643
5
14000
0.5428
7599.2
49242.2
6
14000
0.4803
6724.2
55966.4
7
14000
0.4251
5951.4
61917.8
Pay back period falls in Year 6 and Year 7
Year 6 + Initial Investment-CCF of year 6
DCF of year 7
Year 6 +0.68
6.68 or 6 years 8 months